Cotton traders worried about bearish surprise in USDA report

General Comments: Futures were high as traders got ready for the export sales report today and the USDA reports tomorrow. It was mostly a consolidation trade yesterday. Many are worried about a bearish surprise as prices have gotten much stronger in the last week. Bears point to increasing certified stocks levels for reasons to be bearish. Demand bulls noted positive economic data released last week and positive economic data in general as a reason to buy. However, export sales reports showed some reason for worry last week as sales were down and China cancelled some recent purchases. The current low new crop prices are bringing into question what farmers in Texas and the Delta and Southeast will plant this year. Some are wondering if planted area might be lower this year here in the US due to weak prices against competing crops. The area lost would go mostly to Corn and Soybeans. Current weather featured some precipitation in Delta and Southeast areas, but western Texas was mostly dry. Delta and Southeast areas will be dry. Ideas are that the market can continue to work higher overall.

Overnight News: The Delta and Southeast will see showers and rain tomorrow and Friday, then a dry weekend. Temperatures will average near to above normal. Texas will get dry weather, although eastern areas could see very light precipitation today and tomorrow. Showers are possible in all areas on Sunday. Temperatures will average much above normal. The USDA spot price is now 76.19 ct/lb. ICE said that certified Cotton stocks are now 0.154 million bales, from 0.146 million yesterday. USDA said that net Upland Cotton export sales were 93,600 bales this year and 19,500 bales next year. Net Pima sales were 30,700 bales this year and 0 bales next year.

Chart Trends: Trends in Cotton are mixed to down with objectives of 7990 and 7750 March. Support is at 80.20, 79.90, and 78.00 March, with resistance of 82.30, 83.40, and 84.00 March.

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General Comments: Futures closed lower on speculative trading in preparation for the USDA reports at the end of the week. Ideas are that USDA can show smaller crops in its reports this week due to the greening disease and dry weather that has been reported in Florida. USDA has cut production potential in the previous two estimates and might be forced to trim the estimate a little more next month. Weather remains about the same in Florida. Temperatures remain mild to warm in the state, and conditions are mostly dry. Forecasts do not call for any threatening temperatures, but dry weather is creating ideas that more fruit can be lost. Fruit is holding for now, and irrigation is being used by producers to hold crop condition. Harvest in Florida of mid and early oranges is continuing, and the Valencia harvest is underway. Weather in Brazil is reported to be good. Brazil is seeing near to above normal temperatures and scattered showers. Harvest is continuing, so an increase in supplies should be expected at this time of year.

About the Author

Jack Scovilleis a veteran futures market analyst specializing in grains, softs, rice, oilseeds, and tropical products such as coffee and sugar. His industry contacts in South America, Europe, Asia, and North America provide him with a unique and comprehensive view of these markets. Jack began working in the futures industry over 30 years ago and spent 10 years working on the floor of the Chicago Board of Trade in various roles, starting with The PRICE Futures Group since it was established in 1988. Jack writes daily commentaries - Morning Grains and Softs, in both English and Spanish and is regularly quoted around the world by news & wire services including Dow Jones, AP, Bloomberg, and Reuters. You can contact Jack by phone at (312) 264-4322 or by email at jscoville@pricegroup.com. Learn even more on our website at www.pricegroup.com.

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